If you have a great idea for a business and want to launch a start-up in 2017, no matter what industry it’s in, one of the key things that you need to keep an eye on (and that will likely stress you out the most) is cashflow. After all, you will regularly need to find money to pay your suppliers, your employees or contractors, your rent and more, plus you will need cash to market your business and its offerings properly, to provide top-notch customer service, and to deliver your product or service well.
If you don’t want to face the situation of having to close your doors because of lack of cashflow, it is imperative that you do everything you can to keep track of your venture’s finances, and to always have money available when you need to pay bills. Read on for three key strategies you can utilize straight away to help you get your start-up’s cashflow under control.
1. Keep Inventory Levels Low
For many businesses, one of the primary costs that really affect cashflow is inventory. If you want to reduce your stress around money then, it is important to keep your stock levels under control and as low as possible. This is something that needs to be kept an eye on year round.
For starters, make the effort to go through your entire inventory so that you know exactly what you have on hand. Work out what is old, slow-moving, or obsolete, and then put these items on sale so that you can get them moving out the door while also bringing in some new cash to buy stock that does actually sell quickly. You should carefully analyze your sales history so that you can tell which fast-moving parts or products you need to keep in stock so that you satisfy your customers and maximize sales.
It is also a good idea to pre-sell goods as much as possible. By taking orders for items before you have purchased them from your suppliers, you will reduce your risk of spending money on things that don’t end up moving. Pre-selling products also gives you a chance to test out demand for things you’re thinking of introducing, without having to outlay funds for them.
2. Reduce Late Customer Payments
Another very effective way to reduce cashflow issues is to decrease the number of late customer payments you receive every month. After all, you will quickly find that if you have many clients who are continually behind on their payments, your cashflow will be negatively impacted, and fast.
To minimize this issue, start by making sure that it is quick and easy for your customers to pay you when they purchase. You might want to set up direct debit systems so that customers don’t even have to remember to pay their invoices, or you can take advantage of EBPP (electronic bill presentment and payment) systems, so that bills can be paid directly online.
You can also set up merchant services solutions if you run an e-commerce business. That way, customers pay using their debit or credit cards, or even their PayPal account or other digital wallet, directly at the time of purchase.
It is also wise to put strict rules in place around credit terms that you provide to customers. Before providing terms to individuals or businesses you should first conduct a credit check on them. You can also ask customers to provide reference details for other businesses they have bought on account with, so that you can check if the client has a history of paying on time. As well, consider not providing payment terms at all until people have purchased from you, up front, for three or more orders first.
For anyone you have given 14- or 30-day (or even longer) terms to for their accounts, make sure that you don’t allow them to place new orders if they have outstanding unpaid invoices. This gives them an incentive to get their accounts up to date and will also ensure that you don’t end up further out of pocket. You might also decide to offer a five percent discount or other incentives (such as faster shipping, bonus goods, or the like) to customers who pay their bills on or before the due date. This will help to incentivize quicker payments.
3. Renegotiate With Your Suppliers
Lastly, don’t be afraid to contact your own suppliers to see what you can do about freeing up cashflow on that side of things. Speak with each company you deal with to see if you can get them to provide you with better prices and/or conditions for your regular purchases.
For example, in return for your repeat business, you might be able to convince suppliers to:
- Give you longer payment terms (such as 60 days or 90 days)
- Provide you with free or discounted shipping options for your orders
- Give you discounts on your purchases if you buy over a certain quantity or value of stock per order or within a set period
Byron Simpson is a qualified business/finance writer expert in investment, debt, credit cards, Passive income, financial updates. He advises in his blog finance cent.